BEL, Garden Reach To MTAR Tech: Defence Stocks Zoom Up To 45% YTD: What The Rally Continue In 2026?

Defence Shares

Defence Stocks Surge In 2026: Defence stocks are emerging as one of the market’s standout performers in 2025, with the Nifty India Defence index rising 19%, supported by a powerful mix of geopolitical uncertainty and strong policy tailwinds.

Of the 18 constituents in the Nifty India Defence index, 14 are trading in the green on a year-to-date (YTD) basis, while nine have delivered double-digit returns, according to NSE data. Shipbuilder Garden Reach Shipbuilders & Engineers (GRSE) has emerged as the top performer, gaining 45% in 2025 so far.

MTAR Technologies, Paras Defence and Bharat Electronics have each advanced more than 30% during the year. Bharat Dynamics has climbed 26%, while Astra Microproducts has rallied 24% over the same period. On the downside, Zen Technologies has been the biggest drag on the index, with its stock plunging 45%.

Cyient DLM, Unimech and BEML have also remained under pressure, losing between 11% and 38% on a YTD basis.

What is driving the defence rally?

The rally in defence stocks is being powered by a combination of large order backlogs, ongoing geopolitical conflicts, the Atmanirbhar Bharat push and rising defence exports.

In India, the Ministry of Defence signed a record 193 contracts worth over Rs 2.1 trillion in FY25. This has provided companies such as HAL and BEL with earnings visibility for the next 5–10 years, said Santosh Meena, Head of Research at Swastika Investmart.

Domestic procurement also hit a key milestone in 2025, with 92% of defence contracts awarded to Indian companies. This has significantly improved margins for local players that earlier functioned mainly as sub-contractors. Meena added that India’s defence exports touched an all-time high of Rs 23,620 crore in FY25, underscoring the growing global competitiveness of Indian defence technology.

At the same time, 2025 has been marked by persistent global tensions, including the Russia-Ukraine war, instability in the Middle East and India-Pakistan conflict-related developments such as Operation Sindoor. These factors have prompted many countries to accelerate defence acquisitions.

Vinit Bolinjkar, Head of Research at Ventura, noted that a record defence budget of Rs 6.81 lakh crore, strong export growth to around Rs 21,000 crore in FY25, multi-year order books and policy continuity under the Make in India initiative have collectively fuelled the rally. Despite mid-year corrections, the Nifty India Defence index has still delivered solid returns, he said.

Can defence stocks sustain momentum in 2026?

The sharp rise in defence stocks has also raised valuation concerns, prompting investors to reassess whether these multibagger names still warrant fresh exposure.

Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, said valuations are the biggest concern. “Pure-play weapons and equipment-related defence stocks are trading at valuations ranging from 34 to 178 times earnings. The median PE of the defence pack is above 50, which remains very high despite the recent correction,” he said.

Against this backdrop, Meena expects the market to reward companies with strong execution capabilities and a focus on next-generation technologies rather than driving a broad-based sector rally. While the phase of rapid price appreciation may slow as valuations normalise, the long-term structural growth story for the sector remains intact, he added.

Gupta believes the defence growth theme is likely to play out over multiple decades, making the sector an “inevitable” component of a long-term investment portfolio, even as he cautioned investors on near-term valuations.

Top defence stocks to buy

Sharing his preferred picks, Bolinjkar highlighted three defence stocks: Astra Microwave Products, Bharat Electronics and Hindustan Aeronautics.

Astra Microwave Products: Considered a strong buy, with expected revenue, EBITDA and PAT CAGR of 18–23% through FY28, driven by high-margin exports and EBITDA margins expanding to 25.6%.

Bharat Electronics (BEL): Supported by robust order inflows of Rs 12,539 crore till October 2025, 25% year-on-year PAT growth in Q2 FY26, and an export push targeting 10% of total turnover.

Hindustan Aeronautics (HAL): Benefiting from the large Rs 62,370 crore LCA Mk1A order, with strong indigenisation and order visibility supporting multi-year growth.

Santosh Meena also views BEL as the defensive backbone of the sector, citing its backlog of over Rs 74,000 crore and debt-free balance sheet, making it a safe-haven play in defence electronics.

He is additionally positive on Mazagon Dock, given its near-monopoly in high-value submarine and warship construction and strong visibility tied to the Indian Navy’s long-term modernisation plans.

“Solar Industries offers a unique recurring-revenue model through explosives and ammunition consumables, benefiting from strong domestic demand and a rapidly expanding export market. Data Patterns, meanwhile, is a high-margin, high-technology play focused on specialised R&D and indigenous electronic warfare systems, often delivering margins of 35–40% due to deep intellectual property ownership,” Meena added.